Choosing the right deductible

Times are changing, both in our personal financial lives and in the insurance business.   As modern homeowner policies offer more and more coverage, the companies that offer them are more conscious about claim use than ever.   It is hard to feel sorry for insurance companies but they are facing many of the same financial difficulties you and I face.   For years they enjoyed high stock market returns and interest rates on their investments.   These high investment returns allowed them to compete for customers.   They lowered rates and expanded policies to cover more perils.   When the interest rates and stock market finally declined, they realized they needed to charge much more for their policies in order to pay the claims they were seeing in record numbers.

We’ve all been affected by this market cycle, both by paying lower than normal rates during the late 1990s and now by paying higher than expected rates.

One way to help fight these higher rates is through careful consideration of the proper deductible.    A mistake often made is thinking that any claim larger than the deductible should be turned in.   We suggest thinking of how much you could afford if you had to pay for a loss, without causing a financial hardship, say $1000 for example.   Then cut that number in half and that amount is generally a good deductible.   When a loss occurs, decide whether this is a claim you should pay yourself, even if it exceeds your deductible.   Remember that most claims are relatively small.   Absorb these small claims and use your insurance to pay for the large ones.   Don’t risk the insurance protection of your most valuable asset by turning in a lot of small claims.